Cities start taxing Ubers -- and that's just the beginning

It’s getting more expensive to drive in cities -- whether you’re a human or a bot.

In New York, the highest fee for crossing into the center of Manhattan in a car is now reserved for those using ride-hailing apps such as Lyft Inc. and Uber Technologies Inc. Gov. Andrew Cuomo and his Fix NYC advisory panel had aimed for a fee to hit anyone using a private automobile without carpooling. That proposal was turned back, for now, but advocates expect to try again.

The reason: Commuters accustomed to New York’s ailing subways and buses now have another option, making the city’s notoriously bad traffic even more unbearable and diverting fares from mass transit. Fast-forward to the era of driverless taxis, which promise prices far below current $2-per-mile rate for city’s yellow cabs, and it's a recipe for nonstop gridlock.

“App-based transportation will fill up every bit of space in the city,” said Sam Schwartz, president of a traffic-engineering firm and a member of Cuomo’s advisory panel. “We have to be very careful. Adding more vehicles will add congestion.”

Across the globe, cities are adding fees on ride-sharing companies or considering ways to curb the congestion they have caused. London charges $15 for driving in certain areas in prime daytime hours, and Washington D.C., Chicago and Seattle are adding fees to ride-share cars. Even the Australian state of New South Wales, which includes Sydney, is adding fees to lower traffic.

There’s a lot at stake.

App-based ride-hailing services have already lured plenty of subway riders with rides that go for $2 or $3 a mile. Big companies like General Motors, Alphabet Inc.’s Waymo unit and others seek to drop the cost well below $1 a mile with self-driving cars. And the autonomous future could here before long: Waymo plans to launch its first driverless taxi service in the Phoenix area later this year.

If cities levy big fees and surcharges on individual drivers and, eventually, solo robotaxi riders, it will add costs to an emerging business that’s attracting large investments in pursuit of big returns. Carmakers, tech firms and fleet companies are projected to spend $61 billion over the next five years on the development of autonomous vehicles, according to consulting firm Alix Partners.

Policymakers are using congestion fees to encourage sharing and deter individualized driving while also raising revenue for mass transit. New York State’s most recent budget includes a $2.75 tax for anyone riding an Uber or Lyft car into Manhattan south of 96th Street, an area that covers the city’s core, and $2.50 for those in a yellow taxi. Hire a carpool service like Via Transportation Inc., however, and the charge is just 75 cents for a ride with someone else.

Cuomo didn't get legislative approval for so-called “congestion pricing,” which would have imposed a steep fee on any vehicle entering the city center. The Fix NYC Panel wanted an $11 fee on every private car, and Schwartz said the plan's supporters will try to tweak the proposal and bring it back. There’s also a new proposal before the New York City Council that wold cap the number of new for-hire car licenses, an effort to limit the growth of Uber and Lyft.

In late June, meanwhile, Washington D.C. raised the tax on app rides from 1 percent to 6 percent with a goal of raising $23 million for the public-transit system. Chicago has also raised its fees this year on Uber and Lyft and now charges a 67-cent per ride surcharge. Seattle's City Council said in April that it’s studying ride-hailing and its effects on transportation in the city.

Response from ride-hailers

Ride-hailing companies are starting to react. Lyft is working on changes to its app that will give riders more car-pooling options, said spokesman Alex Rafter. Right now the app shows one car-pooling option among several solo services. One-third of Lyft's rides opt to carpool in markets where it is offered, and Rafter said the company hopes to shift user behavior by offering more carpool options.

Lyft officially supports fees and congestion pricing if they tax all transportation providers the same. Uber has a similar view, said spokeswoman MoMo Zhou. Uber sees individual drivers, not solo ride-hailing passengers, as the biggest cause of congestion, and the company supports incentives to get people to share and carpool.

“A more equitable and effective way to raise revenue and decrease congestion is to institute congestion pricing,” Zhou said.

Fees will only slow the growth in traffic introduced by ride-hailing, according to Bruce Schaller, a consultant and former traffic-planning official in New York City. In a new report on the impact of these “transportation network companies” in U.S. cities, Schaller said most of the users of carpool services like UberPOOL are switching away from public transit. For every mile of personal driving replaced by the use of a ride-hailing app, Schaller found that the vehicles serving Uber and Lyft customers actually add 2.8 miles of driving.

Carpool services add 2.6 miles of driving for every individual mile removed.

His report also noted that people who can afford the option of Uber and Lyft will use the apps instead of public transit. People making $200,000 a year or more took an average of 45 trips a year with transportation network companies. Ridership grew 62 percent last year to 4.2 billion passengers, Schaller said, and is expected to surpass buses this year.

Massachusetts was one of the first states to impose fees on ride-hailing apps, slapping a 20-cents per ride tax on Uber and Lyft. The state gives 5 cents of the tax to taxis, 5 cents to the state's public-transit service, and 10 cents to the cities and town where the rides are given.

“App-based transportation will fill up every bit of space in the city”

Boston's test market

Boston is a interesting place to watch the future of autonomous vehicles intersect with current policies. NuTonomy, a self-driving unit owned by auto electronics giant Aptiv, has a permit to test self-driving cars citywide. At the same time, Boston's Metropolitan Area Planning Council has done two studies this year that look at how to manage increased traffic in the region.

If not for ride-hailing apps, a survey of 1,000 heavy users in Boston found, 42 percent of respondents said they would have taken public transit. Of those who have shunned public transit for an app, only one-fifth shared rides with services like UberPool. MAPC estimates that 12 percent of all ride-hailing trips in that area are substituting for buses and trains during rush hour, and 3 percent would have walked or rode a bike. That means 15 percent of ride-hailing trips added to Boston’s traffic.

The survey also found that 30 percent of Metro Boston Transit Authority riders were using the system less because of ride hailing. Bus ridership is down 6 percent, taking $19.3 million in revenue from the Metro Boston Transit Authority.

There’s another trend that bodes well for ride-hailing growth and bad for future congestion. Two-third of Uber and Lyft riders are under 35, according to a study by the San Francisco County Transit Authority.

In Oakland, Councilwoman Rebecca Kaplan has floated the idea of a 50 cents-per-ride fee on Uber and Lyft. “They are contributing the most to congestion in the most congested areas of the city,” Kaplan said in an interview. “They aren’t paying anything, so it’s unfair to taxpayers.”

Kaplan scrapped the proposal for a ride tax, and she said Oakland is now in talks with Uber and Lyft to come up with a solution that could include congestion pricing, like Cuomo proposed in New York, or other ways to encourage carpooling and offer low-cost transportation to seniors and the disabled.

Cities are also adding fees at airports, where parking garages are less packed but traffic is getting heavier. Jeff Brandes, a state senator in Florida who has led the state's push for laws accommodating autonomous-vehicles testing, warns that cities and airports will have to rethink transportation and have dedicated pickup zones for ride-share vehicles and the right incentives to encourage their use.

“Uber and Lyft have absolutely added to traffic and changed the paradigm at airports,” said Brandes. “If it's bad now it will be worse under autonomy. These zombie vehicles are the conversation people are starting to have.”